Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.08C h a i r m a n ’ s

2/ 28/ 2022

C o l u m n“Company seal problems” that
deter remote work
This three-day weekend was hectic in Tokyo with news ofsignificant snowfall.
Those in snowy regions would scoff at how Tokyo residents
are alarmed at such news. However, because Tokyo’stransportation system can suddenly come to a halt, it iscommendable that train cancellations are planned ahead oftime to prevent accidents.

Our firm has also been forced to respond to the fifth
declaration of Covid prevention measures by limiting
workers in the office (our goal was 30%). In both the covid
situation and snowfall, it is crucial for workers to have asolid remote work environment.

Our firm manages nearly 1,500 SPCs and because weperiodically use SH-GK and TMK stock companies, andincorporate entities on behalf of clients, we are still
obliged to be physically present in the office to seal
documents.
In digitally progressive nations like Estonia, companies canbe established via the internet in one day, a huge
difference compared to Japan’s process. On the Japanese
government’s Digital Agency website, there is a page on“Digital transformation of government” which notes that aschedule and relevant KPI will be disclosed.
This is news to us, and we hope these efforts
come to fruition as fast as possible.
(Kazuhiro Matsuzawa, Chairman)

Among the challenges specific to Japan is the problem ofcompany seals.

R e n e w a b l e

E n e r g y

Will the Nation’s first “Solar paneltax” be enacted?
The “Mimasaka business-use solar panel tax” by-law waspassed at Mimasaka city’s (Okayama prefecture) Decembermeeting. According to the city, the panel tax is outlined asfollows:Taxname/type
Applicablebusinesses
Calculated on
Tax filer
Tax rate
TaxableperiodBusiness-use solar panel tax（non-statutorypurpose tax）
Businesses that install and generate
electricity from solar power facilities within
the city
Total square meter of panels at solar power
facilitiesThose that install/operate solar power
generation facilities within the city
50 yen per square meter5 years

The tax will be used to fund policies to create a safe andsecure environmental protection plan for disaster
response, living conditions, and the natural environment.

The city’s reasoning is that solar power generation
businesses require the installation of solar panels acrosswide areas. Obviously the wider the area, the more
electricity is generated, which puts strain on thedeveloped land. Residents may notice changes in theirliving conditions such as new risk resulting from naturaldisasters, damages from wildlife, and the deterioration ofland after operators end their electricity sales.
The JPEA (Japan Photovoltaic Energy Association ) has
responded by strongly opposing the implementation of thenon-statutory purpose tax. They argue that the new tax
would result in double taxation for solar power generation
businesses that already pay corporate, enterprise, andproperty tax. Other opposing reasons include thedeterrence of fair competition for a renewable energy
category that is trying to be independently sustainable,and changes in loan repayment plans that affect thepredictability of businesses.
(continues p.2)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.08

2/ 28/ 2022

(continued from p.1)
Additionally, estimated calculations reveal that a tax of 50
yen per square meter can result in approximately 2% ofrevenue from electricity sales.
I believe the investment impact that 2% of electricity
revenue has on solar power generation businesses andinvestors is tremendous. If this tax is in fact accepted at
the national level, it is possible that other cities and towns
may follow suit. That would put unnecessary strain on
solar power generation and would contradict thegovernment policy of carbon neutrality by 2050.

There will certainly be interest in the coming months onwhether this non-statutory purpose tax is accepted by theMinistry of Internal Affairs and Communications.
(Hirokazu Ando, ASA Reporting Professional K.K.)

J a p a n

R e a lE s t a t e

However, realistically, cashflow is generated more
frequently and simplifying it looks like the chart below (forexample purpose, in semi-yearly increments, not monthly)

Understanding IRR

Yr. 0-1000.520

1 1.5 2 2.520 20 20 20

320

3.520

4 4.5 520 20 120

IRR
44.0%

Of course, a higher IRR is calculated if the periods are
made shorter and total reinvestment is larger.
Additionally, because IRR calculation is premised on“reinvesting generated cashflow at IRR,” it is often difficult
to reinvest cashflow from high yield properties at the samerate. In that case, the modified IRR may be more
appropriate for capturing variable rates of reinvestment(example below)

During my previous employment at a foreign-based realestate firm, a private fund manager said, “We won’t
acquire the property because the IRR is below ourinvestment criteria.” I asked him how their fund defines
IRR. He replied with “we don’t have a specific definition.”
After viewing their cashflow calculation, I noticed that rent
was entered monthly, while the excel IRR formula wasapplied to the total annual amount. A simplified version isshown below:
Yr. 0-100

140

240

340

440

5140

IRR
40.0%

Yr. 0-100

140

240

340

440

5140

MIRR
31.8%

（Rate of reinvestment＝20%）

Both the XIRR and MIRR Excel formulas enable varying IRRcalculations (For XIRR, IRR is calculated based on
occurrence date of cashflows).
While I did have this conversation with the fund manager,
he went on to revise the cashflow calculation and purchasethe property. I’m making assumptions here, but he may
have just lowered the terminal cap rate and increased theexit price after all.
(Shigeru Hirai, Client Relations Group)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.08G l o b a l

2/ 28/ 2022

N e w sWhy Digital Land?

What does one do in the metaverse besides play online
games?

There’s not a day that goes by now without hearing thewords, crypto, NFT, or metaverse. You can probably add“digital land” to that growing vocabulary of blockchainbased worlds now.

Investors are building out homes, event spaces, and retailshops and placing tenants in them (just like in the realworld). Will they be sustainable business models? Only
time will tell but the most popular platforms certainly havea growing user base and perhaps higher chance of acquiring
customers other than gamers.

Record sales of digital land were completed in November
and December of last year, according to the Wallstreet
Journal. Republic Realm is one of those active players
acquiring and developing digital land across numerous
virtual worlds. Last year the company set a record inpaying $4.3 million (490 million yen) for land in theSandbox, one of the major platforms for digital land.
So why are investors and companies purchasing land in themetaverse?
There’s certainly an element of first-mover advantage atplay when it comes to securing the most valuable land inthe most popular platforms like Sandbox, Decentral and,and Crypto voxels. No one wants to miss out on a gold rushand those willing to take on risk are being rewarded
astronomical returns in very short time on the secondarymarket.

Case in point, world-renown U.S. musician Snoop Dogg isbuilding a Sandbox metaverse of his own. The perks ofbecoming a paid member include exclusive NFT releases
and ticket to a future metaverse concert. Perhaps signaling
further momentum, last December, an investor purchased
land in Snoop Dogg’s metaverse for $450,000 (51.7 millionyen).
It’s still anyone’s guess as to how big each platform grows
and whether it will enter the mainstream. We will certainly
keep a pulse on this emerging new economy.

(Yuichi Totani, Client Relations Group)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.08J a p a nTa x

2/ 28/ 2022

U p d a t e

The Future of Stamp Duties
As you may already know, stamp duties are required fortransactions involving contracts and receipts in Japan.
However, there are views that the regulation is unfair
specifically for the increased volume of untaxed electronictransactions and for contracts signed overseas which
receive similar treatment.
Regarding the issues above, the Ministry of Economy,
Trade, and Industry submitted a request to reconsider thesystem of stamp duties altogether within the framework of
the 2022 tax reform. The three main issues consideredwere 1) unfair treatment 2) increase in credit cardtransactions that have not been captured accurately for its
economic substance and 3) being significant costs forcompanies.

However, the reality is that stamp duties amount to about
1 trillion yen of tax revenue (about 2.5% of total Japan tax
revenue). Because the nation is struggling with its
financial administration, if the stamp duty were to beeliminated, the government would have to replace the lost
revenue through other means. Certainly not an easy task.
The stamp duty was first introduced in Meiji era year 6(1873) by emulating Europe’s system, and an elimination
would end its roughly 150-year history.
(Harutomo Yamasaki, Tax Consulting Group)

The 2022 tax reform outline announced on December 10
did not include the reform for the issues above, however
the Japanese government seems to have finally begun toreconsider its system of stamp duties. Whether stamp
duties are eliminated altogether or expanded is still
uncertain and we will keep an eye out for developments.

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Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.